Unraveling Coordination Problems

31 Pages Posted: 28 Aug 2023 Last revised: 30 Aug 2023

Date Written: August 29, 2023


Strategic uncertainty complicates policy design in coordination games. To rein in strategic uncertainty, the Planner in this paper connects the problem of policy design to that of equilibrium selection. We characterize the subsidy scheme that induces coordination on a given outcome of the game as its unique equilibrium. Optimal subsidies are unique, symmetric for identical players, continuous functions of model parameters, and do not make the targeted strategies strictly dominant for any one player; these properties differ starkly from canonical results in the literature. Uncertainty about payoffs impels policy moderation as overly aggressive intervention might itself induce coordination failure.

Keywords: mechanism design, global games, contracting with externalities, unique implementation

JEL Classification: D81, D82, D83, D86, H20

Suggested Citation

Heijmans, Roweno J.R.K., Unraveling Coordination Problems (August 29, 2023). Available at SSRN: https://ssrn.com/abstract=4552733 or http://dx.doi.org/10.2139/ssrn.4552733

Roweno J.R.K. Heijmans (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045

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